One of the most important sources of income that you will depend on when you are older will be Social Security. These benefits won’t run out and you can count on them increasing with inflation, this is because of the design of the retirement benefits program.
However, you may be shocked to hear that you do not always get to have all of your benefits. Actually, it depends on your earnings and where you live, both your state government and the federal government could take a portion of your money.
Will you need to give the federal government a cut of your benefits?
If you are single and your income is more than $25,000 or married with an income of $32,000 you could be one of them. If your income gets to this amount, you will be taxed on up to 50% of your benefits.
You could lose up to 85% of your benefits if your income reaches $34,000 as a single filer or $44,000 for married filers.
The good thing is, all your income does not factor in when determining the “provisional income” that this threshold goes by. Provisional income is half of SS benefits added to all income that is taxable and some income that is non-taxable.
A large number of people will have income above these thresholds because these thresholds are not subject to increases due to inflation. Which means they will ultimately have to give up some of their retirement income to pay federal taxes.
What about your state government?
You may also have to pay some of your benefits to your state government.
There are 37 states that don’t tax benefit checks, so if you live in one of those states you don’t have to worry about this. However, if you live in one of the other 13 states, you will have to find out what the standards are for when your benefits become taxable. The income limitations may be different in some states than the rules of the IRS, so you should check with your states revenue department if you live in one of these 13 locations:
- Rhode Island
- New Mexico
- North Dakota
- West Virginia
It is highly probable that you would end up owing both federal and state taxes on SS benefits if you live in one of these states, so you could pay a hefty portion of your retirement income from Social Security to the government.
Author: Steven Sinclaire